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Full and final settlement

One settlement brings together what you owe the leaver and what they owe you. It covers held salary, leave encashment, notice pay or recovery, gratuity, loans, clearance dues and the final TDS. HR approves, then accounts, then payroll marks it paid.
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The problem it solves

  • The full and final lives on a spreadsheet, and leave, loans and advances are each checked by someone else.
  • A laptop not returned or an open expense claim is found after the money has gone.
  • Gratuity and the final TDS are worked out by hand, and the leaver disputes the figures.
  • Settlements wait for months because nobody can see which ones are still open.

How it works

  1. Once the separation is approved and every mandatory clearance is done, HR clicks Full and Final on it. Payroll can also start one under Payroll > Salaries > Full and Final.
  2. Click Calculate. The settlement fills in service, notice required and served, and the gratuity wage, and makes one line for each amount payable or recoverable.
  3. Still Open lists what blocks it: payroll not run to the last day, an asset not returned, a claim being processed. Fix it and calculate again.
  4. Add anything else as a line by hand. It is marked Entered by HR and kept when you calculate again.
  5. Click Send for Approval. An HR Manager approves first, then a Payroll Officer. Send Back returns it to Calculated for correction.
  6. After paying, payroll types the Payment Reference and clicks Mark Settled. Held payslips are paid, loans are closed, encashed leave is used up and the salary ends on the last working day.
  7. The leaver is told, the Settlement Statement prints for both sides to sign, and the relieving letter can now be released.

Everything it does

What the settlement works out

  • Held or unpaid salary: each held payslip that is approved; one not approved yet is listed as still open
  • Leave encashment: this covers each leave type whose policy encashes on exit. It pays the balance on the last day up to the policy's maximum, at the policy's rate. Year-end encashments still unpaid are added
  • Notice recovery: shortfall days times a day's pay, when the shortfall is recovered; nothing when waived
  • Pay in lieu of notice: the days you type in Notice Paid by the Company, times a day's pay
  • Gratuity, bonus, reimbursements and deductions entered for payroll after the last payslip
  • Loan and advance balances: principal left plus instalments partly recovered
  • Clearance dues per department, travel advances not settled, and a wage balance carried forward that is still open
  • Final income tax (TDS)
  • Total payable, total recoverable and the net; a negative net is recovered from the employee

Notice and gratuity rules

  • Notice required comes from the policy on the resignation date; notice served is the days from resignation to the last working day
  • A day's pay: monthly gross, or Basic plus DA, divided by 30 to start with
  • Gratuity after 5 years of service, not needed on death
  • A part year above 6 months counts as a full year
  • 15 days' gratuity wages per year of service, a month taken as 26 days, at most 20,00,000
  • No gratuity and no TDS line for an Entity on pay preparation rules (outside India)

Final TDS

  • The tax on the whole year's actual salary with this settlement, less the TDS already deducted, in the regime the employee chose
  • Leave encashment exempt up to 25,00,000 and gratuity up to 20,00,000
  • The Income Tax tab shows the full tax computation
  • For Entities on the India payroll rules with a tax year set up

Still open

  • Payroll not run up to the last working day, or a payslip not approved
  • A loan approved but not paid
  • An asset not returned, or a mandatory clearance pending
  • An expense claim still being processed
  • Send for Approval refuses while anything is listed

Approval, payment and cancelling

  • Statuses: Draft, Calculated, Waiting Approval, Approved, Settled and Cancelled; numbered FNF/2026/0001 and so on
  • Step one HR (HR Manager), step two Accounts / Payroll (Payroll Officer); nobody decides their own settlement
  • Once approved, the clearance dues can no longer change
  • Payroll marks it settled; the payment date is today
  • Payroll cancels; while it waits, the approver of that step can too; a settled settlement cannot be cancelled
  • With accounting on, each line posts to its account and the payment posts from the bank; gratuity uses the provision first

Held salary during notice

  • Salary During Notice: Paid every month as usual (the default), or Held until the full and final
  • When held, every payslip from the resignation date is held with the reason Notice period and paid in the settlement
  • A held payslip inside a settlement cannot be released on its own

Reports and records

  • Full and Final Status (Payroll > Reporting): each leaver in a period with last day, reason and status. Also payable, recoverable, days since the last day and paid on
  • Pending by age: 0 to 30, 31 to 60, 61 to 90 and over 90 days, with amounts; on screen or as PDF
  • Settlement Statement to print
  • Only HR Managers and Payroll Officers of the Entity see settlements; a confidential salary stays limited to those with that right

Who uses it

HR ManagerStarts the full and final once clearance is done, adds lines by hand, and decides the HR step.
Payroll OfficerCalculates, approves at the accounts step, records the payment and marks it settled.
LeaverIs told when it is settled and signs the printed statement.

Where you use it

  • Web: Payroll > Salaries > Full and Final, the Full and Final button on a separation, and Payroll > Reporting > Pay Runs > Full and Final Status
  • The SmartMy HRMS app: HR starts it from a separation. Payroll works it out, submits, adds a line, approves and marks it settled (built and in testing, not in the app stores yet)
  • Not in the app: printing the Settlement Statement, which is on the web
  • Not shown to the leaver online: they get the notice and the printed statement

What you control

Settings

  • Salary During Notice: Paid every month as usual to start with
  • Notice Pay / Recovery On: Monthly gross to start with, or Monthly Basic (+ DA)
  • Notice: Days in a Month: 30
  • Gratuity After (years): 5; Part Year Counted as a Year Above (months): 6
  • Gratuity Days per Year: 15; Gratuity: Days in a Month: 26; Gratuity Maximum: 20,00,000
  • Letters Only After the Full and Final: on to start with
  • Leave encashment on exit and its maximum: per leave policy

Approvals

  • Full and final: HR, then Accounts / Payroll, to start with. Use the recommended levels sets an HR head, then a finance or payroll approver, both named by you. The usual approvers decide until you name them.

Notifications

  • Full and Final to Approve: to the approvers of the waiting step, in the app, by email and by push in the phone app
  • Full and Final Settled: to the employee when it is marked settled, in the app, by email and by push
  • Both go out at once and cannot be switched off; a person can switch off a channel, and in-app notices always arrive

Works with

SmartMy FeastCanteen and mess purchases not yet deducted become a recovery line; a wallet balance or open meal plan is listed as still open.
SmartMy HostelHostel charges not yet deducted and unpaid hostel invoices become recoveries; a person still checked in is listed as still open.
SmartMy POSStore purchases charged to the salary and not yet deducted become a recovery line.

Questions

Can we hold the salary of the notice period until the settlement?

Yes. Set Salary During Notice to Held until the full and final. Each payslip from the resignation date is held and paid in the settlement.

How is gratuity worked out?

The last drawn gratuity wages, times 15, divided by 26, times the years of service, up to 20,00,000. It needs 5 years, except on death, and a part year above 6 months counts as a year. All of these are settings.

Can we add something the system does not know about?

Yes. Add a line by hand as Payable or Recoverable with a name and amount. It is kept when you calculate again.

Who approves the settlement?

An HR Manager, then a Payroll Officer, to start with. You can replace these steps with your own Full and final approval chain. Nobody approves their own settlement.

Is the final TDS worked out for us?

Yes, for Entities on the India payroll rules. It taxes the year's salary with the settlement, exempts leave encashment and gratuity within the legal limits, and shows the computation.

Does it post to the accounts?

Yes, when payroll accounting is on. Marking it settled posts the settlement entry and the payment from the bank.

Related features

EXITResignation, exit interviews and clearanceAn employee resigns, or HR records a termination, retirement or other separation. The notice comes from your policy, the manager and HR approve, every department clears the leaver, and the exit interview is on record.STATUTORY AND TAX, INDIAGratuity and provisions for bonus and leaveEach month the system works out the gratuity every employee has earned so far and books the part not yet provided in your accounts. One Provisions report shows what you owe your people on any date: gratuity, statutory bonus and leave at the encashment rate.LOANS, INCREMENTS, BONUSLoans, advances and recoveries from salarySalary advances and staff loans with your eligibility rules, interest free, flat or reducing balance, recovered through payroll with EMI holidays, pauses, top-ups and foreclosure. Canteen, hostel and shop purchases come off the same payslip, and whatever is left is settled at exit.LEAVELeave types, credits, rules, year end and maternitySet up any leave type with its own credits and rules, and let the system keep every balance. Requests are checked against the policy when they are sent, approved through your chain, and closed at year end by carry forward, encashment or lapse.STATUTORY AND TAX, INDIAIncome tax (TDS), declarations and Form 16Each payroll projects the year's salary under the employee's regime and deducts the tax still due, spread over the months left. Employees declare and compare the two regimes, and payroll accepts or rejects their proofs. Form 16 Part B, 12BA, 12BB and the 24Q data come from the same figures.LETTERS, CARDS, DOCUMENTS, ASSETSAssets issued to employeesLaptops, phones, SIM cards, keys and uniforms go out on a request that is approved, handed over and acknowledged by the employee. When they come back damaged or not at all, the charge is recovered from salary, at once or in monthly instalments.

See your own month run in it.

Tell us how many people you have, how you take attendance and how your salary is structured. We will show you SmartMy HRMS set up that way.
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